Turkish Lira Further Dived as Black Sea Grain Deal Collapsed and State Banks Became Nervous before This Week’s Rate Decision

The Turkish lira gave up another 2% today, on Tuesday July 18, to a record low against the dollar on concerns that the central bank may raise interest rates less than previously expected this week. The lira hit a record low of 26.9 per dollar, down from Monday's close of 26.3505. The beleaguered currency is down 30% so far this year. Some "business circles" close to the regulator expect rates to rise to around 16.50-17.0%. Some traders suggested that local state banks decided to withdraw their support ahead of the central bank’s interest rate-setting meeting on Thursday this week.

According to preliminary data, the USDTRY exchange rate drop was sparked by the situation with the non-extension of the Black Sea Grain Deal as well.

A number of other factors also negatively impacted the value of the lira. In particular, the increase of the key rate by the Central Bank of Turkey, 650 basis points from 8.5% to 15% and the regulator's promise to conduct a tighter monetary policy, seemed not entirely impressed economists.

Earlier it was reported that in Turkey after the VAT increase sharply increased prices for gasoline and diesel fuel. In June, the central bank raised interest rates, to 15%, promising to continue tightening until the inflation outlook improves significantly.